Rachel Morarjee in Moscow -

With the US and Western European economies in the doldrums, investors are in agreement that emerging markets will drive global growth in the coming year. China, with the world's largest population and double-digit growth rates, has traditionally exerted a bigger pull than the other Bric economies: Brazil, Russia and India. And if China has been the darling of the litter, Russia has been the runt.

Most of the commentary on relative comparisons is couched in terms of macroeconomics, where China's (and India's) sheer size swamp the other members of the club. Moreover, China's 9-10% growth rates are held up as a miracle, but there is little discussion of either the quality of the growth nor the reason: China is growing so fast because it is right at the beginning of the convergence process, whereas Russia is growing more slowly as it is about halfway through its transformation.

This begs the question: which is a better place to do business - in the nascent stages of growth or in a more mature economy? It depends on what you are selling, but China's massive numbers should mean it wins in most areas.

Quality vs quantity

Even so, there is a question of quality over quantity. Russia may have a 10th of the population of China, but those it does have are the richest of all the Bric nations by a wide margin - twice as well off as the average Chinese and five times better off than the average Indian.

Thanks to a decade of strong economic growth, Russia's per-capita income (adjusted for purchasing power) is about $15,791 compared with $10,846 in Brazil, $7,206 in China and $3,354 in India, according to UN statistics. "Russia is a middle-income economy and the other Brics are low income, so you have better education in Russia than others in the asset class, consumers are wealthier and crime is better," says Kingsmill Bond, chief strategist at Troika Dialog.

Moreover, Bond suggests that 68% of the Russian population can be counted as middle class (approximately 100m people), against 31% in Brazil (75m), 13% in China (160m) and under 3% in India (30m). This means that China may have 10 times more people than Russia, but only half as many consumers as Russia, which in turn has three times more consumers than India - the other megalopolis in the world. "A lot of the concerns that people have about the Russian market are just long-held prejudices about the country are not relevant for investors," argues Bond.

Those prejudices have weighed on Russian stock valuations, which are incredibly low compared with their Bric peers, with price/earnings ratios - a popular way of comparing the value of shares - of only 6x earnings, compared with China where stocks trade at 16x, Brazil at 10x and India at 17x. By any ranking, Russian stocks are clearly amongst the cheapest in the world. "Russia still has the stigma of being the weakest link in the Bric grouping, and investors favour other more market-orientated economies," says Nigel Rendell, emerging market strategist at RBC Capital Markets.

Allan Conway, head of emerging market equities at Schroders in London, says Russian stocks are significantly undervalued because investors overestimate the risks in the country and fail to see the strong economic fundamentals. Russia's economic bedrock is made of the hardest granite; growth is strong, inflation manageable, foreign currency reserves are huge and it is home to some of the largest energy resources in the world, he lists.

The Kremlin hasn't helped bolster Russia's image much either, which only adds to the burden that holds down stock prices and holds back foreign investment. The plunge in the country's stock market in 2008 after Russian tanks rolled over the border into Georgia and global oil prices slid, left investors jittery both about political risk and the Russian economy's reliance on the energy sector. A poor corporate governance record hasn't helped any either. "Even though a risk premium is appropriate for all these problems, a 50% discount to other emerging markets is too much," says Schroders Conway. "Russia has all it needs - it just needs to speed up the reform agenda."

Moreover, headline-grabbing cases of asset seizures and poor share performance have been concentrated in areas where the government is squeezing Soviet-era assets: oil, gas and utilities. "Those three sectors continue to destroy value in Russia," says Bond.

But sectors that offer exposure to Russia's burgeoning middle class, from telecommunications to banking, are competitively priced compared with stocks in other emerging markets. Russia does have its problems, but they might not be as bad as many investors fear.

More to go around

Life expectancy in Russia is lower than in Brazil and China, dragged down by alcohol and drug abuse, particularly amongst men. Much has been made of the country's unfavourable demographics - Russia's population is shrinking while the other Brics are seeing theirs grow.

But fewer people means less competition for scarce resources; in China and India where there are huge numbers of people, a lack of clean water and a need to import fossil fuels could stoke a potent cauldron of social unrest. "Demographics is a red herring. There is more potential for unrest from a rapidly rising population competing for scare resources," Bond says.

Corruption is probably the hottest of the various button issues that pundits stab on a regular basis. But all the emerging markets suffer from chronic corruption. The problem with Russian corruption is that it's often destructive, whereas Chinese corruption tends not to be - Chinese officials are better at skimming their percentage off business deals without standing in the way of entrepreneurs.

Arthur Kroeber, head of Beijing-based consultancy Dragonomics, says corruption in China, while pervasive, has always been constructive rather than kleptocratic with officials wanting 10-15% of the top of deals and projects which go on to succeed. "Officials' interests are broadly aligned with those of the entrepreneurs. I don't see it as an obstacle to growth here the way it is in Russia or Africa," says Kroeber.

The Kremlin's drive for reform and modernisation could improve that. In the meantime, the Russian consumer holds the key to growth.